Most of us are familiar with the normal UK bank levels of protection for savings should our bank fail. If you hold money with a UK authorised bank, building society or credit union that fails, The Financial Services Compensation Scheme (FSCS) automatically compensates you as follows:
Up to £85,000 per eligible person, per bank, building society or credit union.
Joint accounts are eligible for FSCS protection up to the same limit of £85,000 per eligible person. So, for a joint account the total amount protected would be £170,000.
Shared banking licenses
Care is needed if you have savings in more than one bank. How you hold your money could affect how much compensation you’re entitled to. If you have money in multiple accounts with multiple banks that are part of the same banking group (and share a banking licence) they are treated as one bank for compensation purposes. This means that in the event of a firm failure, the £85,000 compensation limit applies to the total amount you hold across all these accounts, not to each separate account. If in doubt, ask at your bank; they are required to provide information making it clear that they are a brand operating under the same licence as other brands and should provide details of any shared licence.
Temporary high balances
Also worth noting, is that the FSCS also protects temporary high balances in your bank account, building society account or credit union account of up to £1 million for six months. The protection begins from the date the temporary high balance is credited to you, which may be earlier than the date the money was credited to your account with the bank that failed. You don't need to inform the FSCS if you have a balance higher than £85,000.
The FSCS cannot confirm the eligibility of a particular temporary high balance unless/until a bank or building society actually fails. This is because they review all of the available evidence to check that there was a sufficient connection between the relevant life event and the sums in your account.
Certain life events could have caused a temporary high balance in your bank account, including:
Real estate transactions (property purchase, sale proceeds, equity release - relating to your main residence only. This doesn't have to be a UK property but must relate to your main residence).
Benefits payable under an insurance policy.
Personal injury compensation (unlimited amount).
Disability or incapacity (state benefits).
Claim for compensation for wrongful conviction.
Claim for compensation for unfair dismissal.
Redundancy (voluntary or compulsory).
Marriage or civil partnership.
Divorce or dissolution of their civil partnership.
Benefits payable on retirement.
Benefits payable on death.
A claim for compensation in respect of a person's death.
Inheritance.
Proceeds of a deceased's estate held by their personal representative.
To prove you've held a temporary high balance, rather than it being your normal level of savings, the FSCS may ask for proof which could include (but not be limited to) the following:
A property sale receipt or agreement.
A court judgement.
A Will.
A letter from an insurer regarding an insurance payout.
A letter from a lawyer, conveyancer, mortgage provider, former employer, pension trustees.
Court orders.
Social security statements.
Probate/letters of administration.
Death/Marriage certificate.
Land register and HMRC records.
This list isn't exhaustive and the evidence required will depend on the life event of your individual circumstances. If you provide the relevant supporting evidence, they will pay you compensation within three months.
Isle of Man
The Isle of Man Depositors’ Compensation Scheme (DCS) will pay up to £50,000 per person per covered bank, less any outstanding loans/mortgages you hold with the failed bank. For a joint account you are each entitled to up to £50,000.
Isle of Man Deposits in the name of entities other than individuals (for example companies, trusts, charities).
The maximum cover is £20,000 per entity per covered bank, not per underlying client. Entities, for this purpose, include companies, trusts, nominees, charities and partnerships. Trusts include, for example, SIPPs. Deposits constituting client accounts, which are described as such, are however not entitled to compensation.
Gibraltar
Pending the finalisation of the UK’s proposed new relationship framework between the UK and Gibraltar (the Gibraltar Access Regime), savings held by UK branches of Gibraltarian firms will continue to be protected by the Gibraltarian deposit guarantee scheme (up to €100,000 euro per person). Eligible deposits held in Gibraltarian branches of UK firms will continue to be protected by the FSCS.
Business and Partnership accounts
If you have a business account and a personal account with the same failed bank, and your business is a separate legal entity, e.g., a limited company or LLP, you could claim up to £85,000 for each account. If you’re a sole trader (e.g., Mr Smith trading as Smith Motors) you wouldn’t be entitled to two separate claims – you can claim up to £85,000 in total.
Although joint account holders are usually entitled to make separate deposit claims for £85,000 each, if the joint account holders hold the account as partners in a business, then the business partnership is only entitled to a single claim of £85,000 (not one claim per business partner).
FSCS protection for deposits made by charities
FSCS protects eligible deposits with banks, building societies and credit unions that are authorised by the Prudential Regulation Authority (PRA) up to £85,000 per authorised institution. This means that how a charity spreads its money can affect the amount of compensation the charity is entitled to. The Rulebook does not specifically mention charities. The charitable status of the charity is not a relevant factor to determining eligibility. The eligibility of a charity’s deposit being protected by the FSCS is determined by the charity’s underlying nature and legal structure. This will be set out in the charity’s governing documents.
In England and Wales there are four main types of underlying legal structures:
- a charitable incorporated organisation (CIO)
- a charitable company (limited by guarantee) i.e. a limited company
- an unincorporated association (UA) (e.g. a club)
- a trust
Charities
FSCS would generally treat deposits of the types above as the claimant and would apply the eligibility criteria to them directly. All the charity’s accounts held with the failed bank or banking group would be aggregated and protected up to £85,000 in total.
Trusts
How the FSCS treats a depositor that is a trust would depend on the type of trust arrangement in place.
Funds held under a bare trust
Under the Depositor Protection rules, there are circumstances where the FSCS can ‘look through’ a named account holder to regard each ‘absolutely entitled’ beneficiary as a separate claimant.
A beneficiary of a bare trust is always ‘absolutely entitled’ to funds held in the trust.
It’s important to understand that all deposits to which the beneficiary is entitled (held with the same bank or another bank in the same banking group) whether held directly in their own name or as a beneficiary under a trust would be aggregated. Each eligible beneficiary is entitled to FSCS protection of up to £85,000 in total.
Funds held under a non-bare trust
Funds may be held under a non-bare trust, such as a discretionary trust or charitable purpose trust. The beneficiaries of a non-bare trust are not ‘absolutely entitled’ to the funds held on trust. This makes a difference to the level of protection available. The FSCS would usually consider the Trust itself as the claimant.
FSCS protection of £85,000 is applied to the Trust per authorised institution. All the Trust’s accounts (held with the same bank or another bank in the same banking group) are aggregated and the total amount protected is £85,000. This is regardless of the number of beneficiaries under the Trust. Trustees have a separate claim for each separate trust that they are a trustee of.
Summary
Our aim is to ensure that you are able to enjoy life while we take care of your finances, ensuring you’re set up in the most tax efficient way for your particular circumstances. If you are considering how best to set up your finances as a resident of Spain please contact us.
Speed Financial Solutions are a highly qualified and regulated financial services provider looking after clients throughout Spain and the UK. Established in 2010, we provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your financial planning.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII (Level 7) and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
This communication is for information purposes only based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
28 November 2024
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